TMT Blog: The future of music – streaming platforms face a difficult path

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2015 was the first time that music streaming services generated more revenue than both CD sales and digital downloads combined. According to the Recording Industry Association of America, streaming services generated €1.69 billion, representing an impressive 34.3% share of the market.

It is unsurprising therefore, that there are rumours circulating that Apple is considering a takeover bid for streaming service Tidal. Tidal was launched in March this year by rapper Jay Z and counts Alicia Keys and Beyoncé amongst its shareholders. Madonna’s latest video and Kayne West’s notorious Famous single were recently launched exclusively on the service.

Yet behind the glamour of popstar shareholders, there is a bleaker industry picture as finding a way to make music streaming profitable still appears elusive. Spotify may have reported sales of €1.1bn in 2014 but it lost €180m in that period. US-listed firm Pandora went one better shedding €76m in just a single quarter. Furthermore, large high profile streaming companies have largely survived due to several rounds of funding. Smaller providers have been less lucky. US start-up Rdio followed the well-trodden path of Live365 and Songza by going bankrupt, owing its creditors €189m.

A key issue is that streaming platforms do not own their own content. This places them entirely at the mercy of music copyright holders. Three record labels control about three quarters of the market, giving them a scary level of negotiating power. Spotify, for instance, pays 70% of its revenue to record labels and music producers.

The second key problem is competition from large technology groups such as Google, Amazon and Apple. Many are using music as a gateway for attracting users to other products and services. For instance, Apple runs its streaming platform Apple Music as a loss making service in order to sell tablets and iPhones.

The music industry across the board is going through a major period of disruption. Streaming music is a phenomenon that is certainly here to stay, but innovation is needed to create profitable platforms that provide both choice for consumers and profit for their owners.